Month: March 2016

Amid the din of insults and sloganeering that is the American presidential election process, a few places on the series of tubes that make up the internet are continuing to engage in serious discussions about the policy preferences stated by the various remaining self-aggrandizing lunatics candidates for president.

Attention to genuine policy—as opposed to catchphrases—is commendable, though also disappointingly rare. However, there is at least one manifestation of policy journalism that has no place in a thoughtful discussion: projections of changes to individual tax burdens inherent in the candidates’ proposals. This tool set up by Vox and the Tax Policy Center is particularly misleading, although graphs of tax changes across the income distribution aren’t very useful either.

We’ll leave aside for the moment the fact that the chance of any candidate’s plan getting passed in its current form is nil, because this is less important than the main point: taxation is only half of the impact of these fiscal policy changes. Cruz and Trump’s plans include large reductions in taxes across the board, and Sanders’ plan includes substantial increases in taxes, particularly for the wealthy but also across the income distribution, but this is only a very limited picture. It doesn’t include, for example, the impact of Cruz’s national value added tax plan on net income, as this can’t easily be calculated for any individual; it will depend on the quantity and distribution of consumption between different goods.

The other half of the picture that is ignored by this analysis is the impact of government spending. Even the most conservative observer would agree that the government can transfer money across the income distribution, however inefficiently such a person may assume the government will be in doing so or the long-run implications for incentives to economic activity. Sanders is not simply proposing to raise taxes, but to raise taxes and then spend the money in ways that he claims will help lower and middle income people.

This means that a simple analysis of income tax changes is pathetically incomplete. Donald Trump will spend most of the next 7 months (barring a highly entertaining Cleveland convention) telling you that Hillary Clinton will raise your taxes while he will cut them. Even if this is true (which will depend on your income), it’s intentionally misleading. Trump would try to cut taxes as President, but tax cuts are a cost that someone will have to pay, and that person may well be you, in the form of government services, public investment, future public benefits, or interest on the national debt. Sanders would try to raise taxes as President, but that money would be spent (in the same equally unlikely scenario that includes 1)Sanders winning the presidency and 2)Sanders pushing through tax increases) on public provision of healthcare, public services, and infrastructure.

In brief, public spending also has distributional consequences, and if this isn’t included in the calculations, you’re better off not publishing the tax tool—it’s highly misleading and presents government as a fixed institution that either takes more or less of your money and does nothing with the tax revenue it does collect. This is a very American view, but one that continues the distorted political discourse around public spending and fiscal policy that has dominated the last 35 years. News organizations should stop publishing these tools until they can account for the full impact of both taxation and spending.

Yes, it’s true! After more than a year of absence (blame the library of Sir Thomas Bodley, the existence of Middle Common Rooms, and education-induced financial deleveraging), more dispatches are on the way.